Reconsider the example above, where you are contemplating the purchase of the coupon bond with a face value of $1,000, which matures in 17 years, and pays 6.15% (annual) coupons. Now, If you require a return of 6.75% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places. For instance 1045.16]
| Par/Face value | 1000 | ||||||||||||||||
| Annual Coupon rate | 0.0615 | ||||||||||||||||
| Annual coupon | 61.5 | ||||||||||||||||
| Present Value = Future value/ ((1+r)^t) | |||||||||||||||||
| where r is the interest rate that is .0675 and t is the time period in years. | |||||||||||||||||
| price of the bond = sum of present values of future cash flows | |||||||||||||||||
| r | 0.0675 | ||||||||||||||||
| t | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | 15 | 16 | 17 |
| future cash flow | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 61.5 | 1061.5 |
| present value | 57.61124 | 53.96838 | 50.55586 | 47.35912 | 44.36451 | 41.55926 | 38.93139 | 36.46969 | 34.16364 | 32.00341 | 29.97978 | 28.0841 | 26.30829 | 24.64477 | 23.08643 | 21.62664 | 349.6761 |
| sum of present values | 940.39 | ||||||||||||||||
| You would offer to pay $940.39 for the instrument today. |
Reconsider the example above, where you are contemplating the purchase of the coupon bond with a...
Reconsider the example above, where you are contemplating the purchase of the coupon bond with a face value of $1,000, which matures in 17 years, and pays 6.15% (annual) coupons. Now, If you require a return of 6.75% on this instrument, how much would you offer to pay for it today? [Present the answer rounded to two decimal places. For instance 1045.16]
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